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Monthly Archives: July 2009

Not scorpions, not reptiles, not hairy poisonous spiders, not jackals, not piranhas, not hyenas.

And while some taxpayers may swear that the IRS agent they talked to was worse than the mythical Leroy Brown (that is, “meaner than a junkyard dog” and who was “bad, Bad!”

fourteen years before Michael Jackson was “Bad”), experience suggests (and were a study conducted, empirical evidence, I believe, would support) that the people who work for the IRS are human, all too human.

The significance of this to a taxpayer in a jam is that if some IRS (or corresponding state taxing authority) staffer has been trying for months or years to collect a back tax debt, or just get the taxpayer to file one or more missing returns*, that salaried government employee just might develop an all-too-human negative impression of the taxpayer.

(*If you find a tax advisor who says you don’t have to file a return, hang on to your wallet, and run, don’t walk, to someone else!)

The Taxman’s Human? What’s the Downside?

Even if the taxpayer has one or one-hundred-and-one unassailable reasons to explain how it is that he or she wound up in this situation with IRS agents giving chase, and it all makes sense, the all-too-human IRS employee might form a decidedly negative impression which can affect how that employee might treat the taxpayer.

Recently, in an attempt to resolve a dispute with the IRS before taking it to Tax Court, I met with an IRS auditor who had already slammed my new client with an additional $36,000 in tax interest and penalty by disallowing $90,000 of business deductions he claimed for his little company. My mission: persuade the auditor that many, most, or all of the deductions she had disallowed were legitimate, and that she should which should be recognized as legitimate.

Policy Changes Which Affect Everyone Revealed in Conversation About One Taxpayer

In the course of talking about my taxpayer’s business and deductions, we discussed more generally tax rules and policy. And in that part of the conversation, this auditor told me that starting now, more and more audits will involve multi-year examinations (what many of us call a “tax audit,” the IRS calls an “examination” — audit, examination, both words refer to the same thing).

So, for example, three years ago, a taxpayer might have been audited (or “examined”) for tax year 2005, now, it is much more likely that if the IRS initiates an audit, the audit will involve not just 2005, but also ‘06, and ’07.

IRS Uses Old TV Commercial Logic: “How Do We Do it? Volume!”

Why? Simple: it’s cheaper by the dozen! Three years in one audit costs the IRS less than doing only one year.

In fact, this auditor explained, doing multi-year audits has always been the official policy, but often it was not carefully supervised by the layers of internal management at the IRS. But now that the federal government needs money severely, the IRS is looking to get as much of a bang for its audit buck as it can.

Happy(er) Ending for Client

Meanwhile, over the course of 6 hours or so, I persuaded the this auditor to recognize more than half of the disallowed expenses as being legitimate, resulting in reducing the additional tax, interest and penalty from more than $36,000 down to about $6,000. The taxpayer considered that a very good result.

And, a Word to the Wise Taxpayer

And, so, a “take-away” for everyone else, be aware: multi-year audits are on the rise. One way to start being ready if you become a target of audit is to keep and have good records. It may be a great time to review your record-keeping system, or to develop one if you don’t have one!